UK employers have been told to look to UK nationals – especially "unemployed young Britons" – to recruit, rather than relying on foreign nationals, by the work and pensions secretary Iain Duncan Smith (pictured). But employer groups fear, this could "shrink the talent pool".

Under EU laws most EU citizens can work in the UK without restriction and the Government has introduced a cap on the number of skilled workers from outside the EU, in an effort to reduce net migration from about 200,000 a year.

Speaking on Friday, Duncan Smith said: "We have to be sure our immigration system works in favour of Britain. [The Government has] made a realistic promise to our young school leavers as part of our contract reforming welfare to make work pay and to get people back into work. We are toughening sanctions on those that will not take work.

"We need an immigration system that gives the young especially a level playing field to take the work when it is available. If we don't get this right, we risk leaving our citizens - particularly young people - out of work. That is why, in the short term, we [have to] control immigration or risk losing another generation to dependency or hopelessness.

"But as we work hard to get people ready for the labour market, business has an obligation as well."

Commenting, David Frost, director general of the British Chambers of Commerce (BCC), said: "Businesses in this country need to have a highly skilled workforce and for many firms that means employing migrants. Employers need staff who can read, write and communicate properly, and our young people often lack these basic skills needed for the workplace.

"Getting more young people into work in this country doesn't rely upon stemming the flow of skilled migrants coming to the UK. It's about more than just additional training to get people into work. We need to provide our young people with the right skills at school in the first place, and overhaul our welfare system so it incentivises people to move into employment.

"The government is already acting to reduce the numbers of unskilled migrants coming to this country. But highly skilled foreign workers are important to our economy, and it is vital that they are allowed to enter the country so businesses can hire the workers they need."

Gillian Econopouly, the Recruitment and Employment Confederation's head of policy, added: "What is important is that we improve not shrink the candidate pool. There are already stringent controls on migrants coming from outside the EU with only highly skilled workers granted entry.

"With the high levels of youth unemployment in this country, it is crucial that businesses and Government work together. Through the introduction of a National Insurance holiday to incentivise businesses to take on young people, we can help tackle the youth jobs crisis.

"If young people are going to be able to get a foot in the door of what is essentially a global jobs market, employers, recruiters and the Government need to work together to ensure that the focus in schools is on giving the right guidance to equip future jobseekers with the skills to succeed."